Docstoc

Marketing Strategy of Mcdonalds Company - PowerPoint

Document Sample
Marketing Strategy of Mcdonalds Company - PowerPoint Powered By Docstoc
					       MGT. 5391
       Session # 7

     Strategic and
   Global Management

Main Types of Strategies
 (Corporate and Business)
              http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #1
Two Types of Strategies:

1.Corporate/ Enterprise
2.Business/ GBU/ SBU


             http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #2
Today’s Discussion will
   focus on Business
 Strategies at the GBU/
   SBU Division level

             http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #3
 Strategies


Strategies represent integrated and
  coordinated set of actions
(deployment/execution) that are
taken to exploit core competencies to
improve the firm’s four capabilities
and gain a competitive advantage.
                                                                         4-4
                   http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #4
What is a Strategy for Exemplar Performance?

    Michael E. Porter defines organization strategy as creating
    a company’s position, making trade-offs, and forging fit
    among activities:

                   “Strategy is the creation of a unique and valuable
                    position, involving position, involving a different
                    set of activities.”

                   “Strategy is making trade-offs in competing. The
                    essence of strategy is deciding what not to do.”

                   “Strategy is creating fit among a company’s
                    activities.”
Source: Michael E. Porter, “What is Strategy”,” Harvard Business Review, November-December, 1996, p. 62

                                                                                    http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #5
                        Internal and External Growth
                                  Strategies
                                                Market/Customer
                                                    Insights                          Increased
                                                  (from EBE)                         Commercial,
                                                                                    Technological,
                                                                                    Organizational,
                                                                                         Team
      Internal                                                                       Capabilities
                                          Value Chain:
      Business                                                                         (Internal
                                              Core                                                                       Increased
   Environment (5)                                                                     Growth)
                                          Competencies                                                                  Performance
                                          Identification
    Corporate &
  Business Strategies                                    Outsourcing (Non-
                                                               Core
                                                          Competencies)

                             M&A/JV’s
                          (External Growth)
________________
                                                                                      http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #6
Source: B.A.Macy, Successful Strategic Change Berrett-Koehler Publishers, San Francisco, CA (forthcoming)
What is a business-level strategy?



Discuss the relationship between
    customers and business level
    strategies in terms of who, what,
    and how.


                                                                            4-4
                      http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #7
      Summary & Review: A Diversified
     Company Has Two Levels of Strategy
1. Business-Level SBU/GBU
   Strategies:
   How to create competitive advantage in each
     business in which the company competes
      - Low cost                            - Focused low cost
      - Differentiation                     - Focused differentiation
      - Integrated low cost/differentiation - Product Leadership
      - Formal/Strategic Alliances          - Mergers/Acquisitions
      - Customer Intimacy                       (External Growth)
      - Others                              - HPO/HPS/HPWS (Best
                                              Place to Work)
                                            - Customer Service
2.   Corporate/Firm Level (Next Week)
                                           http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #8
          THE THREE TYPES OF BUSINESS
          STRATEGIES TO MEET MARKET
                  DEMANDS
                                                     PRODUCT LEADERSHIP
                                                         BEST PRODUCT:
                                                  •OPTIMISED FOR INNOVATION &
                                                             SPEED

                                              •PRODUCT FEATURES THAT DELIVER
                                                         RESULTS


                                                                        CHOICE


                                OPERATIONAL                                           CUSTOMER INTIMACY:
                                EXCELLENCE:                                               BEST TOTAL SOLUTION:
                                BEST TOTAL COST:                                         •OPTIMIZED FOR SPEED AND
                                                                                              RESPONSIVENESS
                             •OPTIMIZED EFFICIENCE                                            •VALUED ADVICE
                              •LOW & LOWEST PRICE                                       •CUSTOM - TAILORED SERVICE
                            •HASSLE-FREE, RELIABLE

Source: Adopted from: M. Porter, Competitive Advantage, The Free Press, 1985     http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #9
Example: Four Types of
  Enterprise/Business Level Strategies

  1. Monetize Assets (Sell all or parts)

  2. Optimize (Cash Cow)

  3. Grow/Create more Market Share
    •   Internal Growth (Increased capabilities and core
           competencies)
    •   External Growth (M&A)


  4. Combination of above (be specific as
    to what businesses and/or product
    lines)
                                   http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #10
          Enterprise Level and S.B.U. Actions to
                Create EVA and Growth - 1
I. Create New Pathways for Increasing Returns
   • Market Services and Knowledge Products: Create Value-added “Price Tower” or
     Minimally Secure Share or Price; Extract Royalty/License Human Capital
   Revenue as Appropriate
        Proprietary Data Bases and Data Based Management for Operations,
       Regulatory Acceptance
           Compliance, Suppliers Performance to Value Chain, Customers Operations
        Disruptive Technologies for Industry Niche: e.g, Nonstick Conveyance,
       Noninvasive
          Monitoring & Process Control, On-line Quality Measurement, Applied Fluid
       Dynamics in
          Design, Shift Engineering Emphasis & Capital from Reaction to Raw
       Materials and Logistics
          to Customer, in particular, Packaging and Storage, Remote Process
       Control, I-Situ Quality
          Control, Quality Bridges from Manufacturing to Customer Use
        Adaptation of Product Chemistry in Customers’ Operations
        Recoup Sunk R&D Costs in Negotiated Transactions
        Transfer and Maintain Technical Competencies, Information /
       Communication / Learning
                                             http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #11
          Enterprise Level and S.B.U. Actions to
                Create EVA and Growth - 2
I. Create New Pathways for Increasing Returns
      o   Infrastructure for Channel Partners, and Financial Solutions in Credit
          Analysis and Credit
      o   Create Training & Brokering Venture
      o   Leverage Internet Protocols for Industry Niche: e.g., Go Direct for Small
          Customers with Improved Service Level and Credit Facility, Portal for
          Industry Niche, Virtual Value Web for
      o   R&D, Logistics Optimization, Regulatory Compliance & Monitoring, E-
          Commerce & E-Credit
      o   Customer Intimacy Strategy: R&D/Technology Innovation, Precision &
          Accuracy in Support of Data Mining & Harvesting for Customer and Their
          Consumers, Shared Growth, Shared
      o   Planning, Co-location, Co-Facility Use, Mirrored Enterprise Units
      o   Reaction Innovation: i.e., Formulation, Bio-based Solutions, in particular
          in Human & Animal Care
      o   E-Commerce Ventures
      o   Creation of “Virtual Organization” to handle your key customers Value-
          Chain transitions.
      o   Creation of dot.coms (both inside and outside)


                                              http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #12
         Enterprise Level and S.B.U. Actions to
               Create EVA and Growth - 3
II. Optimize Against Diminishing Returns
  • Rationalize Current Operations (Seamless Internal Value Chain for
    Marketing to R&D to Manufacturing to Technology to Sales &
    Customer Services to Logistics)
  • Introduce Best Practices/High Performance Across Value Web (i.e.,
    Internal Structure, Organization & Cultural
    Flexibility/Responsiveness/Creativity, Commercial & Financial
    Architecture, Partnering Solutions, Customer Intimacy - Enterprise
    Teams)
  • Supply and Demand Logistics Renovation: e.g., Automation,
    Robotics, Gravity-based Conveyance, Packaging, Toll
    Manufacturing, Integrated Manufacturing & Logistics, SAP Adapted
    to Operations & Customer Needs.
  • Spread All Costs Over Larger Sales Volume


                                        http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #13
        Enterprise Level and S.B.U. Actions to
              Create EVA and Growth - 3
II. Optimize Against Diminishing Returns
  •Share Channel / Value Pipelines: e.g, Consortia, Industry Lobby,
   Value-added Services Delivery through Channel Partners, i.e.,
   Technical Training to Users,Life Cycle Management of Product &
   Packaging, Credit & Credit Networks to Capture Other Volume/High
   Value Purchases, Shared Channel Capital Projects Investment,
   Cross-Selling of Technology with Like Customer Bases)
  •Consolidate Among Strategic Players (Must Emerge as Critical
   Mass and Be “More” than Combination)
  •Roll-up Privately-held Firms (Must Emerge as Critical Mass and Be
   “More” than
    Combination)
  •New user friendly, low cost software emerging in Fall, 2000 will
   possibly eliminate the use of SAP and other Value-chain systems.


                                       http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #14
        Enterprise Level and S.B.U. Actions to
              Create EVA and Growth - 3
III. Monetize Current & Acquired Assets: Re-channel Capital
     to Priority Projects or Reduce Risk

  • Sell Utilities and Waste Operations for Old and New Manufacturing
    Sites
  • Sell Under Performing Businesses
  • Sell Nonaligned Businesses
  • LBO or ESOP LBO Any of the Aforementioned
  • Create JV’s (in US, LLC’s, LLP’s) to Retain Equity Participation (Or
    Control) while Not Duplicating Levy Exposure yet Providing Risk
    Transfer to a Corporate Entity with “Off the Books” Financing of
    Assets - Leverage Good Credit with Entrepreneurial Partners
  • Establish Toll Manufacturing Network
  • Create Equipment and Talent Leasing
  • Trade Assets & Human Capital Talent for More Liquid Position

                                         http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #15
    S.B.U. Competitive Strategies

• Competitive Strategies
• Definitions of Competitors
• Competitive Strategies
   – Miles and Snow
   – Porter
• First Mover Strategy


                           http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #16
  Strategy and Competitive Advantage
• Competitive Advantage exists when a firm’s
  strategy gives it an edge in
  – Defending against competitive forces and
  – Securing customers
Key to Gaining a Competitive Advantage
• Convince customers firm’s product/service offers
  superior value
  – Offer buyers a good product at a lower price
  – Use differentiation to provide a better product buyers
    think is worth a premium price
                                  http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #17
            Core Competition

• When organizations battle for some desired
  object/outcome
• Who are our core competitors
   – Industry perspective
   – Market perspective
   – Strategic group perspective


                           http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #18
Industry and Market Approaches to
       Defining Competitors


     Industry                 Market


      Same                  Customer
  Product-Service            Needs

                    http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #19
Strategic Group Approach to Defining
          Core Competitors
 • Possible strategic dimensions for
   identifying strategic groups
    – Price
    – Quality
    – Geographic scope
    – Product line breadth-depth
    – R&D expenditures
    – Product characteristics
                           http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #20
    Different Types of Competitive
               Strategies
• Miles and Snow typology
  – Prospector
     • Seeks innovation
     • Survey dynamic environment and develops
       new products
     • Competitors are uncertain about
       prospector’s future decisions and actions

                            http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #21
   Different Types of Competitive
          Strategies (cont.)
• Miles and Snow typology
  – Defender
     • Searches for market stability
     • Limited product line
     • Seeks to defend position
     • Prevents others from entering its turf
     • Can create and maintain niches


                            http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #22
   Different Types of Competitive
          Strategies (cont.)
• Miles and Snow typology
  – Analyzer
     • Strategy of analysis and imitation
     • Copies promising new activities
  – Reactor
     • Lacks a strategic plan
     • Reacts to environmental changes
     • Makes adjustments when forced to
     • Unable to respond quickly to changes
                            http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #23
      Porter’s Generic Strategies

• Market Scope
  – Broad or Narrow

• Competitive Advantage
  – Low cost or differentiated

• Integrated differentiated/low cost


                            http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #24
   Generic Business Level Strategies
                       Source of Competitive Advantage

                            Cost                          Uniqueness




              Broad      1. Cost  2. Differen-
              Target
              Market   Leadership    tiation
Breadth of
Competitive
  Scope
              Narrow   3. Focused                     4. Focused
              Target
              Market   Low Cost                        Differen-
                                                        tiation
                             http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #25
   Generic Business Level Strategies
                       Source of Competitive Advantage

                            Cost                          Uniqueness




              Broad      1. Cost
              Target
              Market   Leadership
Breadth of
Competitive
  Scope
              Narrow
              Target
              Market

                             http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #26
     How to Obtain a Cost Advantage
1. Determine and Control Cost Drivers
2. Reconfigure the Value Chain (Supply and/or Demand
Chains) as needed
• Determine Core             • New Raw Material
  Competencies               • Forward Integration
• Possible Outsource Non-    • Backward Integration
  Core Competencies          • Change Location (i.e., Co-
• Alter Production Process     Location) Relative to
• Change in Automation         Suppliers and Buyers
• New Distribution Channel   • Direct Sales in Place of
• New Advertising Media        Indirect Sales



                                 http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #27
            Three Key Questions

    1. How can an activity be performed
       differently or even eliminated?

    2. How can a group of linked value
       activities be regrouped or reordered?

    3. How might coalitions with other
       firms lower or eliminate costs?

Gallo sold wine through grocery stores rather than liquor
stores because they were more efficient distributors
                                http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #28
Cost Leadership Business Level Strategy

Key Criteria:

      Relatively standardized products

      Features acceptable to many customers

      Lowest competitive price


                          http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #29
Cost Leadership Strategy

Unifi, Inc., one of the world’s largest
    texturizers of filament polyester and
    nylon fiber, makes significant
    investments in its manufacturing
    technologies to drive its costs lower
    even though prices for raw materials
    and packaging supplies are rising.
                                                                           4-9
                      http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #30
Cost Leadership Business Level Strategy
Requirements:
Constant effort to reduce costs through:

   Building efficient scale facilities
   Tight control of production costs and overhead
   Minimizing costs of sales, R&D and service
   State of the art manufacturing facilities
   Monitoring costs of activities provided by outsiders
   Simplification of processes

                                  http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #31
Major Risks of Cost Leadership
   Business Level Strategy

Dramatic technological change could take
away your cost advantage (e.g., 3-M: Duct
Tape)
Competitors may learn how to imitate
Value Chain (elimination of distribution
centers—ship direct)
Focus on efficiency could cause Cost Leader
to overlook changes in customer/consumer
preferences           http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #32
        Low-Cost Leadership

• Make achievement of low-cost relative to
  rivals the theme of firm’s business strategy

• Finds ways to drive costs out of business
  year-after-year

      Low-cost leadership means low
        overall costs, not just low
      manufacturing or productions
                  costs!
                           http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #33
      When does Low-Cost Leadership
                 Work?
• It works when:
  –   Price competition is vigorous
  –   Product is standardized
  –   Buyer incur low switching costs
  –   Industry newcomers use introductory low prices to
      attract and buyers and build customer base
• Pitfalls with this strategy
  – Being overly aggressive in cutting prices
  – Low-cost methods are easily imitated by rivals
  – Differentiation matters
                                 http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #34
Cost Leadership Strategy

Consolidated Stores, Inc. seeks to earn
   above-average profits in its Closeout
   Division by retailing brand-name
   merchandise below discount price
   found by traveling the country in
   search of manufacturer overruns and
   discontinued styles and buying
   leftovers at below wholesale prices.
                     http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #35
Cost Leadership Strategy

Through cost-leadership strategy, low
    cost steel producer, Nucor
    Corporation, relies on investments
    in efficient-scale facilities to achieve
    strategic competitiveness (operating
    profitably ever since 1966).

                        http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #36
   Generic Business Level Strategies
                       Source of Competitive Advantage

                            Cost                          Uniqueness




              Broad      1. Cost  2. Differen-
              Target
              Market   Leadership    tiation
Breadth of
Competitive
  Scope
              Narrow
              Target
              Market

                             http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #37
        Differentiation Strategies

• Incorporate differentiating features that cause
  buyers to prefer firm’s product or service over
  brands of rivals
• Keys to success
  – Find ways to differentiate that create value for
    buyers that are not easily matched or cheaply
    copied by rivals
  – Not spending more to achieve differentiation than
    the price premium that can be easily changed

                               http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #38
Differentiation Business Level Strategy
Key Criteria:

        Value provided by unique features
        and value characteristics

        Command premium price
        High customer service
        Superior quality

        Prestige or exclusivity

        Rapid innovation
                              http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #39
Differentiation Business Level Strategy
Requirements:
 Constant effort to differentiate products/services
 through:
        Developing new systems and processes

        Shaping (Consumer) perceptions through
        advertising
        Product/Service/Quality focus

        Capability in R&D

        Maximize Human Resource contributions
        through low turnover and high motivation
                                http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #40
Differentiation Business Level Strategy
          Effectiveness with Differentiation
         grows out of Value Chain activities
Examples:

Heineken beer            Raw materials

Steinway pianos          Raw materials & Workmanship

Mercedes Benz autos      Technology and Workmanship

Intel microprocessors    Technological superiority

Caterpillar tractors     Service buyers’ needs quickly
                         anywhere in the world
                             http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #41
Create Value with Differentiation by:

    Lowering Buyers’ Costs

    Raising Buyers’ Performance

    Creating Sustainability through:
     • Creating barriers by perceptions of uniqueness
     • Creating switching costs through differentiation


                           http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #42
          Types of Differentiation
• Unique Taste – Dr. Pepper
• Wide Selection and One-stop Shopping – Home
  Depot and Amazon.com
• Superior Service – FedEx and Ritz-Carlton
• Spare Parts Availability – Caterpillar
• More for your Money – McDonald’s and Wal-Mart
• Prestige – Rolex
• Quality Manufacture – Honda and Toyota
• Top-of-the-Line Image – Ralph Lauren and Chanel
                            http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #43
  Major Risks Involved With a Focused
Differentiation Business Level Strategy - 4


    Firm may be ―outfocused‖ by competitors


    Large competitor may set its sights on your
    niche market

    Preferences of niche market may change to
    match those of broad market
                           http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #44
Differentiation Strategy Examples

Some examples include:
 Ralph Lauren and Tommy Hilfiger differentiate their
clothing line through image
 Rolex watches are differentiated by prestige and
image
 Starbucks Coffee differentiates itself by listening to
customers
Intel uses speed, innovation, and manufacturing
techniques as bases if uniqueness                4-9
                              http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #45
Signaling Value as well as Delivering
               Value
• Buyers seldom pay for value that is not
  perceived!!!
• Signals of Value may be as important as
  actual value when
   –   Nature of differentiation is hard to quantify
   –   Buyers are making first-time purchases
   –   Repurchase is infrequent
   –   Buyers are unsophisticated

                                 http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #46
 When does Differentiation Work?

• It works when:
  – There are many ways to differentiate a
    product/service that has added-value and
    pleases customers
  – Buyer needs and uses are diverse
  – Technological change and product
    innovation are fast-paced


                          http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #47
When does Differentiation Work? (cont.)

 • Pitfalls:
   – Charging to high a price or over
     differentiating
   – Failing to signal value
   – Not understanding what buyers want or
     prefer and differentiating on the “wrong”
     things


                            http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #48
Competitive Strategy Principle


  A low-cost provider strategy can
defeat a differentiated strategy when
buyers are satisfied with a standard
    product and do not see extra
  differentiating attributes worth
              paying for!



                     http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #49
   Generic Business Level Strategies
                       Source of Competitive Advantage

                            Cost                          Uniqueness




              Broad      1. Cost  2. Differen-
              Target
              Market   Leadership    tiation
Breadth of
Competitive
  Scope
              Narrow   3. Focused                     4. Focused
              Target
              Market   Low Cost                        Differen-
                                                        tiation
                             http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #50
Integrated Low-Cost / Differentiated

• Combine a strategic emphasis on low-cost
  with a strategic emphasis on differentiation
  – Make an upscale product at a lower cost
  – Give customers more value for the money
• Deliver superior value by meeting or
  exceeding buyers expectations on product
  attributes and beating their price
  expectations

                           http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #51
Basis for Customer Segmentation
Industrial Markets
1. End use segments (identified by SIC code)
2. Product segments (based on technological differences
   or production economics)
3. Geographic segments (defined by boundaries
   between countries or by regional differences within
   them)
4. Common buying factor segments (cut across
    product/market and geographic segments)
5. Customer size segments


                               http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #52
Basis for Customer Segmentation
Consumer Markets
1. Demographic factors (age, income, sex, etc.)
2. Socioeconomic factors
   (social class, stage in the family life cycle)
3. Geographic factors
   (culture, region or country differences)
4. Psychological factors (lifestyle, personality traits)
5. Consumption patterns
   (heavy, moderate, and light users)
6. Perceptual factors
   (benefit segmentation, perceptual mapping)
7. Brand loyalty patterns
                                  http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #53
  Integrated Low-Cost / Differentiation
      Strategy: Southwest Airlines
      Low-Cost                      Differentiation
Use a single aircraft    Focus on customer
 model (Boeing 737)        satisfaction
Use secondary airports   High level of employee
No meals                  dedication
15 minute turnaround     Unique Culture
 time                     A “HPWS”
No reserved seats
                            http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #54
Risk of and Integrated Provider Strategy
• Risk – An integrated provider may get squeezed
  between strategies of firms using low-cost and
  differentiation strategies

  – Low-cost leaders may be able to siphon
    customers away with a lower price

  – High-end differentiators may be able to steal
    customers away with better product attributes
                            http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #55
Focused Business Level Strategies - 1
Focused Business Level Strategies involve the same basic
approach as Broad Market Strategies.
However, opportunities may exist because:

    Large firms may overlook small niches
    Firm may lack resources to compete industry-wide

    May be able to serve a narrow market segment
    more effectively than industrywide competitors

    Focus can allow you to direct resources to certain
    value chain activities to build competitive
    advantage
                              http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #56
 Focused Business Level Strategies - 2
Focused Business Level Strategies involve the same basic
approach as Broad Market Strategies.
However, opportunities may exist because:

      May be able to retrofit old factories to keep costs
      down
      Minimize R&D costs by copying innovators
Examples:
    Bang & Olufsen       Upscale electronic components
      Snap-on tools      High quality mechanics’ tools

     Iams Company        Premium pet foods
                                 http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #57
Focused Business Level Strategies - 3
Focused Business Level Strategies involve the same basic
approach as Broad Market Strategies.
However, opportunities may exist because:

     Focused Differentiators may thrive by selecting a
     small market that is underserved by large players


 Example:
             Custom manufacturers of parts for
            Harley-Davidson motorcycles

                               http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #58
Integrated Low Cost/Differentiation Strategy
               Southwest Airlines
        Low Cost                             Differentiation
 Use a single aircraft model
                                    Focus on customer
 (Boeing 737)
                                    satisfaction
 Use secondary airports
                                    High level of employee
 Fly short routes                   dedication
 No meals
                                    New flight services for
 15 minute turnaround time
                                    business travelers
 No reserved seats                  (phones and faxes)
 No travel agent reservations        S.W.A.’s Culture, Values,
                                     Philosophies & Principles
                                http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #59
Integrated Low Cost/Differentiation Strategy
 Firms using an Integrated Strategy may:
     Adapt more quickly
     Learn new skills and technologies

     Utilize Flexible Manufacturing Systems to create
     differentiated products at low costs
     Leverage core competencies through Information
     Networks across multiple business units

     Utilize Total Quality Leadership (TQL) to create
     high quality differentiated products which
     simultaneously driving down costs (Six Sigma)
                                http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #60
Create Value with Differentiation by:

    Lowering Buyers’ Costs

    Raising Buyers’ (Retail Store)
    Performance (their Market Share)
    Creating Sustainability through:
     • Creating barriers by perceptions of uniqueness/
       customization
     • Creating (higher) switching costs through
        product/service differentiation
                            http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #61
Differentiation Business Level Strategy
          Effectiveness with Differentiation
         grows out of Value Chain activities
Examples:

Heineken beer            Raw materials

Steinway pianos          Raw materials & Workmanship

Mercedes Benz autos      Technology and Workmanship

Intel microprocessors    Technological superiority

Caterpillar tractors     Service buyers’ needs quickly
                         anywhere in the world
                             http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #62
           Focus / Niche Strategies
• Involve concentrated attention on a narrow piece of
  the total market
• Objective
   – Serve niche buyer better than rivals
• Keys to Success
   – Choose a market niche where buyers have
     distinctive preferences, special requirements, or
     unique needs
   – Develop unique capabilities to serve needs of
     target buyer segment
                              http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #63
 What Makes a Niche Attractive for
           Focusing?
• Big enough to be profitable and offers good
  growth potential

• Not crucial to success of industry leaders

• Costly or difficult for multi-segment
  competitors to meet specialized needs of niche
  members

                            http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #64
What Makes a Niche Attractive for
       Focusing? (cont.)
• Focuser has resources and capabilities to
  effectively serve an attractive niche

• Few other rivals are specializing in same
  niche

• Focuser can defend against challengers via
  superior ability to serve niche members
                          http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #65
        Risks of a Focus Strategy

• Competitors find effective ways to match a
  focuser’s capabilities in serving niche
• Niche buyers’ preferences shift towards product
  attributes desired by the majority of buyers –
  niche becomes part of overall market
• Segment becomes so attractive it becomes
  crowded with rivals, causing segment profits to
  be splintered

                            http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #66
Value Chain Analysis




            http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #67
 Three Parts of Value-Chain Design




    3                                  2
                 1


SUPPLIERS/                   CUSTOMERS
              YOUR
 VENDORS
             COMPANY



             COMMUNITY



   Supply            Demand
   Chain             Chain

                     http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #68
                          Value Chain

  Back                                                                                           Front



    Core                                                                                          Market
Technologies   Conceive   Design Develop Procedure Market Sales Distribute Support              (Customer)




                                                      http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #69
             Six Common Factor as to Why
  U.S. Organizations are Successful Global Competitors
           1. Close ties/direct and formalized partnerships with customers (internal and
              external).
           2. Close ties/direct and formalized partnerships with vendors/suppliers
              (reduction in number and certification).
           3. Integrated and simultaneous efforts to improve quality, cost, delivery and
              speed (product development) to the marketplace.
           4. Greater functional (staff and support units) integration (decentralization)
              and less stratification (centralization).
           5. Integration of technology into manufacturing and marketing strategies
              linked to continuous organizational improvements that promotes
              teamwork (teams), training and continuous learning.
           6. Create a broad “learning environment” that emphasis's training and re-training,
              coaching and development (job, team, pass-offs, internal customer and supply-
               chain linkages) -- an “Organizational University.”
Summary: However, it is not surprising that it is very unclear to U.S. Key stakeholders
how you design and implement these six design features and their accompanying
strategies. Although organizations feel these (global) pressures (to change), particularly
as one moves toward the top, the kind of change that is needed to accomplish these
goals is organization wide. Traditional change strategies that begin at the top and
organizations need to more responsive.
                                                      http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #70
          Six Questions of the Value Chain:
1. What is the Value Chain?

2. What are the component parts of the Value Chain?

3. How does a firm’s core competencies relate to the Value Chain?

4. How can a firm create value via Value Chain maximization?

      Demand Chain?
      Supply Chain?
      Both?
5. What gets ―outsourced‖?
6. How to improve the four capabilities?

                                    http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #71
                   Financial Saving through
                   Value Chain Improvement



            15 - 25% of Total
              World-Wide
             Sales Revenue
________________
Source: B.A.Macy, Successful Strategic Change Berrett-Koehler Publishers, San Francisco, CA (forthcoming)
                                                                                  http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #72
Critical Design Elements for Horizontal Organization

                Alliances
            with Competitors



Suppliers    The Firm’s
                                Customers Consumers
             Value Chain

 Supply Chain
                                          Demand
                  Other                    Chain
             Alliances and
             Partnerships
                               http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #73
         Creating Financial Wealth: The Value Chain Design
                  ss                                                                                                                                                                Ch
            s ine              PRODUCT                                                                          • Cu
                                                                                                                     stom
                                                                                                                                        MARKET                                           a
                                                                                                                                                                                  Wa nging
        g Bu ent                SUPPLY                                                          erv
                                                                                                       ice        Intim er               FOCUS                                   Nee nts/
     gin ronm                 ALIGNMENT                                      m              er S
                                                                                                                  •P
                                                                                                                         acy
                                                                                                                                       ALIGNMENT                                De s ds /
   an i                                                                  sto
 Ch Env                                                              • Cu
                                                                                                         C’
                                                                                                            s        r
                                                                                                                  R odu
                                                                                                                                                                                    ire s
                                                                                                      e/D           & ct
                                                                                                  o us                 D
                                                                                                eh




                                                                                            g
                                                                                          ar




                                                                                       turin
                                                                                  •W




                                                                                                                           • S nance
                                                                                                                              Fi
                                                                                                                              al e
                                                                                  ufac




                                                                                                                                   s
                                                                              M an




                                                                               y
                                                                          l og
                                                               castin •




                                                                                                                               • M ar r c h
  Suppliers                                                                                                                                                                      Customers


                                                                      hno




                                                                                                                                 Resea


                                                                                                                                              • M ar k
                                                                       g

     &                                                                                                                                                                               &
                                                                 Te c




                                                                                                                                     ket
  Vendors                                                  ti on
                                                                                                                                                                                 Consumers




                                                                                                                                                      eting
                                                                                                     • Partnering
                                             • F or e


                                                   ppl s
                                                • A stic
                                                       ica


                                                                                                    • Alliances/JV




                                                                                                                                                              •C R&D
                                                    ogi




                                                                                                                                                                ons
                                     ed ce




                                                                                                   • Organizational
                                                 •L
                                   Cr nan
                                        it




                                                                                                                                                                   um
                                                                                                      Effectiveness
                                      i
                                   •F




                                                                                                                                                                      er
                                                    g                                                  • Training
                                  er              in g
                                rd ry           as r i n
                                              ch e                                                       • IS/IT
                             • O nt         ur gine                                                                                                            •C




                                                                                                                                                                      •S
                                E        • P En E                                                                                                             Be omp




                                                                                                                                                                        al
                                            • SH                                                      • SAP/EDI




                                                                                                                                                                           es
                                                                                                                                                                nc et
                                  \           •                                                     • E-Commerce                                                  hm iti
                              ning ing                                                                                                                              ar ve
                            an ul                                                                                                                                     ki
                          Pl hed
                         • c
                                                                                                                                                                         ng
                            S
                                   HIGH PERFORMANCE ORGANIZATIONS
                                          LEFT SIDE -                                                                            RIGHT SIDE -
                                        ―BACK OF SHOP‖                                                                         ―FRONT OF SHOP‖
                                                                                              http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #74
Source: B.A.Macy, Successful Strategic Change Berrett-Koehler Publishers, San Francisco, CA (forthcoming)
Source: Digital Capital, D.Tapscott et.al.,
Harvard Business School Press, 2000           http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #75
                       1                                            3
                                                                                                          4
                        Vision Direction                           “Front of the
                                                                      Shop”                           “Back of the
                                        2                                                               Shop”
                                            Strategies




                                         1st                                 2nd                        3rd
                                 Align                                Create                         Optimize
                                Strategy                             Demand                           Supply

                      Improved Capabilities via Core Competencies



           Horizontal Design’s Core Processes
_____
                                                                                               http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #76
Source: Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA. (forthcoming)
Three Potential Sources of Leverage in
     Leveraged Business Groups

       Back                           Middle                        Front
     (Offering)                   Infrastructure              (Market/Customer)




•Creation of                     •Means used to                     •The customers
 products/offerings               produce and deliver                interface
                                  products and
•“Platforms for                   services to
  manufacturing                   customers                         •How the Business
  products                                                           goes to market


                                                                    •How the
•Technologies
                                                                     organization
 underlying products
                                                                     responds to the
                                                                     customer
  Each component is a potential source of leverage
                                     http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #77
ILLUSTRATIVE SUPPLY CHAIN:
FORTUNE 100 COMPANY
  DISTRIBUTION, ENGINEERING AND MANUFACTURING

            SUPPLY CHAIN CONCEPT
                                                                             EQUIPMENT
               SUPPLY CHAIN CONCEPT


 CUSTOMER                                                PLANT                     RAW
                                                                                MATERIALS
                                                                                PACKAGING



                       DIRECT

                                                                                PEOPLE
                    DISTRIBUTION



                EXTRENAL DISTRIBUTION




                                      http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #78
    Product Supply Example:
Teams to Manage Order Fulfillment
        Product



  Customer
                                                                         Assembly

                  Order                  Outbound
Order                                  logistics team
                  entry
                  team
                                                                                        Materials

                      Leadership team



                          Inbound logistics team



                            Vendor orders
                                      http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #79
     How Do You
 Create a $18 Billion
      Company
  in only 13 Years?
____________________________
Source: B.A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA (forthcoming)


                                                                                      http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #80
                           Direct Business Model:
                              (Dell Computers)
            • Sell directly to consumers
            • Build products to consumer (customer)
               order
            • Eliminate retail mark-ups and costs
            • Reduce risks associated with large
              inventories of finished goods
            • Relationship with consumers
            • Leverage relationship with suppliers
               and consumers
            • Use information to enhance the Value Chain
____________________________
Source: B.A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA (forthcoming)


                                                                                      http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #81
    The Value Chain: The Dell Example




                                                                                          Various
                                            Product               Centers of
Suppliers                 Mfg.                                   Competency
                                                                                         Business            Customers                 Consumer
                                            Supply                                       Segment




                             Corporate Expertise
                             Services   Centers




______________________
                                                                                        Francisco, CA (forthcoming)
Source: Dr. Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, Sanhttp://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #82
                 Value Chain Analysis
      Identifying Resources and Capabilities That Can Add Value



Support
Activities




                   Primary Activities   http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #83
                         Value Chain Analysis
      Identifying Resources and Capabilities That Can Add Value

               Firm Infrastructure

Support
               Human Resource Management
Activities
               Technological Development
               Procurement




                                                                             Service
                             Operations




                                                        Marketing
                                          Outbound
             Logistics
             Inbound




                                                         & Sales
                                          Logistics




                          Primary Activities          http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #84
                  Inbound Logistics

Superior handling of incoming raw materials to minimize damage
and improve the quality of the final product




                                     http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #85
    Operations

Consistent manufacturing of attractive products




 Rapid responses to customers unique manufacturing specifications




                                       http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #86
           Outbound Logistics

Accurate and responsive order processing procedures




Rapid and timely product deliveries to customers




                                http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #87
                  Marketing & Sales

Strong Coordination among functions in R&D, Marketing and
Product Development



Extensive personal relationships with buyers



Premium Pricing

Customer Intimacy (formalized – CAT’s and
Supplier Enterprise Teams)




                                  http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #88
           Service
Complete field stocking of
replacement parts




                             http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #89
               Procurement
Systems and
procedures       Purchase of
used to find     highest quality                Located in
the highest      replacement                    Close
quality raw      parts                          Proximity
materials
                                                with
                                                Suppliers




                              http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #90
          R&D Technological
            Development
Coordination
among R&D,      Investments in
marketing and   technologies to                   Strong
product         produce highly                    capability
development     differentiated                    in basic
                products                          research




                             http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #91
   Human Resource Management

Compensation
programs and        Extensive use
                    of subjective                    Superior
other HR Systems
                    performance                      personnel
and Processes
                    measures                         training/
which encourage
                                                     development
worker creativity
                                                     & coaching
and performance




                             http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #92
   Firm Infrastructure/Macro Structure
(Corporate; GBU/SBU; Supply Chain; Demand Chain, and Enterprise Team(s) Alignment)


       Highly developed
                                                  A company-wide
       Information Systems
                                                  emphasis on producing
       to better understand
                                                  high quality products
       customers’ purchasing
       preferences




                                                   http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #93
Value Chains are part of a Total Value System

Supplier Value Chain      Firm Value Chain             Channel Value Chain           Buyer Value Chain




 Upstream Value                                         Each firm must eventually find a way to
                                                        become a part of some buyer’s value chain
 Perform valuable activities that
 complement the firm’s activities                       Ultimate basis for differentiation is the
                                                        ability to play a role in a buyer’s value chain

                                                        This creates VALUE!!


 Value chains vary for firms in an industry,
 reflecting each firm’s unique qualities:
                                    • History
                                    • Strategy
                                    • Success at Implementation
                                                   http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #94
                                  Outsourcing
   Strategic Choice to Purchase Some Activities From Outside Suppliers

               Firm Infrastructure

Support
               Human Resource Management
Activities
               Technological Development
               Procurement




                                                                              Service
                            Operations




                                                         Marketing
                                         Outbound
             Logistics
             Inbound




                                                          & Sales
                                         Logistics




                         Primary Activities          http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #95
                                          Outsourcing
     Strategic Choice to Purchase Some Activities From Outside Suppliers

               Firm Infrastructure
               Human Resource Management


Support
               Human Resource Management purchase a portion
                                   Firms often
               Technological Development
Activities                           of their value-creating activities
               Technological Development specialty external suppliers
                                     from
               Procurement
                                     who can perform these functions
               Procurement           more efficiently




                                                                               Service
                             Operations




                                                            Marketing
                                            Outbound
                                                                                         Service
             Logistics
             Inbound




                                                             & Sales
                                            Logistics
                                                Outbound
                 Inbound     Operations         Logistics       Marketing
                 Logistics                                       & Sales




                         Primary Activities             http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #96
    Strategic Rationales for Outsourcing
Improve Business Focus
Lets company focus on broader business issues by having outside
experts handle various operational details
Provide Access to World-Class Capabilities
The specialized resources of outsourcing providers makes world-
class capabilities available to firms in a wide range of applications
Accelerate Business Re-Engineering Benefits
Achieves re-engineering benefits more quickly by having outsiders--
who have already achieved world-class standards--take over process
Share Risks
Reduces investment requirements and makes firm more flexible,
dynamic and better able to adapt to changing opportunities

Free Resources for Other Purposes
Permits firm to redirect efforts from non-core activities toward those
that serve customers more effectivelyhttp://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #97
                     How does it fit together?
Vision Direction and Strategies:
                                 Vision
     1st                        Direction
                                                                                                Strategies
                                                                                        (Corporate and Business)
Business Imperatives:

2nd                       Year 2009+                                                    Globalization
                          KPI Goals                                                (External Growth)
                           (Internal)

         Capabilities:                                                                        Strategic Alliances/
                       Increased Capabilities                                                    Partnerships
    3rd                  via identified Core                                                  (Ext. & Int. Growth)
                           Competencies
                                     Future Work Trends                                http://macy.ba.ttu.edu/5491/week7/Strategies.ppt Slide #98
Barry A. Macy, Successful Strategic Change, Berrett-Koehler Publishers, San Francisco, CA. (forthcoming)

				
DOCUMENT INFO
Description: Marketing Strategy of Mcdonalds Company document sample